Where Will Broadcom (AVGO) Be in 5 Years?
Key Points
Broadcom's AI chip sales are soaring.
Its stock still looks reasonably valued relative to its growth potential.
Broadcom's (NASDAQ: AVGO) stock surged more than 600% over the past five years. The tech giant attracted a stampede of bulls as its chip sales surged and it expanded with bold acquisitions. But will its stock rise even higher over the next five years?
A brief history of Broadcom
Broadcom, which was known as Avago before it acquired the original Broadcom and inherited its brand in 2016, once generated most of its revenue by selling a wide range of chips for the mobile, data center, networking, wireless, storage, and industrial markets.
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Over the following decade, it aggressively expanded into the infrastructure software market by acquiring several large companies, including the cloud software giant VMware. That expansion diversified its top line away from the cyclical semiconductor market, while giving it new ways to lock in its large data center customers by bundling together its chips and software.
Why did Broadcom's stock soar?
Much of Broadcom's recent growth was driven by sales of customized application-specific integrated circuits (ASICs) to accelerate AI applications. Unlike Nvidia's (NASDAQ: NVDA) general-purpose data center GPUs, which are well-suited for a wide range of customers and AI tasks, Broadcom's AI accelerators are customized for the largest hyperscalers.
Broadcom's sales of AI accelerators are soaring as large hyperscalers -- such as Meta (NASDAQ: META) and Alphabet's (NASDAQ: GOOG) (NASDAQ: GOOGL) Google -- ramp up their development of custom AI chips to reduce their dependence on Nvidia. At scale, these custom ASICs can also be more cost-efficient at processing AI tasks than Nvidia's GPUs. It bundles those chips with its other optical and networking chips for data centers.
In fiscal 2025 (which ended last November), Broadcom's total AI chip sales surged 65% to $20 billion, accounting for 31% of its top line. That explosive growth offset its slower sales of non-AI chips and infrastructure software, which are more cyclical and exposed to the macro headwinds. By the end of fiscal 2027, it expects to generate $60-$90 billion in annualized AI chip revenue.
Where will Broadcom's stock be in five years?
From fiscal 2025 to fiscal 2028, analysts expect Broadcom's revenue and adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) to grow at CAGRs of 38% and 36%, respectively. With an enterprise value of $1.6 trillion, it still looks reasonably valued at 25 times this year's adjusted EBITDA.
If Broadcom matches those estimates, grows its adjusted EBITDA at a 20% CAGR from fiscal 2028 to fiscal 2031, and still trades at the same EV/EBITDA ratio by the final year, its stock could nearly triple over the next five years as the AI boom continues.
Leo Sun has positions in Meta Platforms. The Motley Fool has positions in and recommends Alphabet, Meta Platforms, and Nvidia. The Motley Fool recommends Broadcom. The Motley Fool has a disclosure policy.